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Dividend Portfolio for Passive Income 2016


Dividend income is my favorite form of passive income because it is truly passive. I don’t have to do anything and the dividends keep rolling in. I like having rentals too, but they are just more work. 2015 wasn’t a great year for stocks in general, but our dividend portfolio did okay. It managed to pull off a small positive gain if we count the dividend payment. We also exceeded our goal of generating $10,000 in dividend income so that was really awesome. My goal for 2016 is to increase that dividend income to at least $11,500. Let’s see how our dividend portfolio performed in 2015 and take it from there.

Dividend Portfolio

Dividend Portfolio passive income 2016The main strategy for our dividend portfolio is to invest in solid companies with good track records of raising their dividend. This way, our dividend income will grow every year even if we can’t add new money. We have been doing pretty well so far since we started following this strategy. Here is our dividend record since 2012. Prior to 2012, most of the investment in our taxable account was in growth stocks.

  • 2012: $6,791
  • 2013: $8,036
  • 2014: $8,759
  • 2015: $10,695
  • 2016: projected $10,925

Actually, our 2016 dividend income should be a little higher than projected. The great thing about the dividend portfolio is that our dividend income should increase every year. This is due to three factors.

  1. Reinvested Dividend – I reinvest most of our dividend income in new stocks. This will increase our total shares.
  2. Dividend Growth – Most of the companies in our portfolio should increase their dividend payout every year. There will be some exceptions as companies face problems. See KMI below.
  3. New Investment – We try to add new money to our dividend portfolio when we have extra savings. This will also increase our total shares. In 2016, I plan to hoard cash and buy when stock is down.

2015 Dividend Income

Dividend Portfolio result 2015

In 2015, the S&P 500 index ended up right about the same level as it started. Individual stocks varied widely,though. Our energy stocks dropped quite a bit, but some others did very well. Overall, our dividend portfolio lost about $5,000 in value. However, we came out ahead if we take dividends into account.

2015 gain: 1.8%

Dividend portfolio value (1/1/2016): $300,249

Also, we beat our benchmark – Vanguard Dividend Appreciation ETF (VIG.) VIG had a negative year even when you count dividend. This is very important to me because if we can’t beat VIG, then I might as well just invest in VIG instead of individual stocks.

Worst Dividend Stocks

Kinder Morgan Inc.

KMI had a terrible year. The stock dropped nearly 65% and they are cutting dividends by 75% in 2016. I’m thinking about picking up some more shares, though. I need to do more research, but I believe the business will back to normal once the energy price recovers. Of course, it might take a few years to get back to where it was.


Walmart dropped 30%. I think the dividend is still safe at the moment.


Shell dropped 27% last year. They seem to be more sensitive to the oil price weakness than other oil companies. Exxon and Chevron also dropped, but not as much as Shell. If oil price continues to be low, the oil companies probably will have to cut dividends at some point.

2016 Outlook

Our long term goal is to generate $15,000 in dividend income per year by 2020. Mrs. RB40 plans to retire then and the dividend income would help pay for our cost of living. For 2016, I think we should be able to meet our incremental goal of $11,000 in dividend income. The projection is based on current dividend payout and it is already very close to $11,000. Most of our companies should raise their dividend next year and push us over. I’m also hoarding cash and plan to add more shares if we see a big slide in stock prices next year.

Do you invest in dividend stocks? Should I pick up more shares of Kinder Morgan?

personal capitalDisclaimer: I have positions in all the stocks listed here. This is not a recommendation. My stock picking track record isn’t great so you need to do your own research. This post will help us keep track of the gains and dividends to see if they meet my passive income goal. If you need help with financial planning, consider signing up with Personal Capital. Personal Capital will help you keep track of all your investments in one place and can hook you up with a personal financial adviser as well.




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Joe started Retire by 40 in 2010 to figure out how to retire early. He spent 16 years working in computer design and enjoyed the technical work immensely. However, the job became too stressful and Joe retired from his engineering career to become a stay-at-home dad/blogger at 38. Today, he blogs about financial independence, early retirement, investing, and living a frugal lifestyle.

Passive income is the key to early retirement. This year, Joe is increasing his investment in real estate with CrowdStreet. He can invest in projects across the U.S. and diversify his real estate portfolio. There are many interesting projects available so sign up and check them out.

Joe also highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help DIY investors analyze their portfolio and plan for retirement.
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{ 22 comments… add one }
  • Adam November 28, 2016, 1:51 am

    Hi, I really enjoy your website and checking out your investing progress. I decided to retire early this year at age 36. As of now my annual dividend income is $11,935. I will keep reinvesting my dividends for a while and I have many plans for next year for gains and losses harvesting. Next year my ordinary income will be zero, that means tax free qualified dividends and capital gains!

    • retirebyforty November 28, 2016, 10:44 am

      Good luck! You can earn some money and your dividend income will still won’t be taxed. We didn’t pay any tax on our dividend income last year. Check it out!

      • Adam April 5, 2018, 5:57 pm

        Things went as planned for 2017! I had zero taxable income, paid no taxes AND I qualified for free healthcare by keeping my taxable income under the federal poverty limit.

  • Joe Hunt November 24, 2016, 4:09 pm

    Do you invest in common stock? What are your thoughts on common stocks?

  • Michael August 18, 2016, 8:30 am

    Hi Joe,

    This is my first visit to your blog. Very nice post! Passive income is great, however, it does require work too as you have pointed out.

    I read somewhere – “it becomes work when you would rather be doing something else”.

    As long as you enjoy what you do for a living, you could plan / save / invest for retirement, and when the day comes, it is truly your choice.

    If you don’t like what you do for a living, you probably need to find something that you truly enjoy doing and try to make a living out of it.

    Right now, I enjoy my work, and I could do what I do for a pretty long time.


  • Lynda Orman May 31, 2016, 7:21 am

    Hi Joe, Do you use DRIP to reinvest your dividends? I hear good/bad about using it and not sure if I should continue. I plan to hold my stocks very long term.. what are your thoughts?


    • retirebyforty May 31, 2016, 7:32 am

      I do not use DRIP. It’s just easier to keep track of the purchase price without DRIP. Also, I want to diversify and look for a good deal. I think either way is okay as long as you reinvest. Good luck!

      • Matthew P Utesch June 1, 2016, 2:27 am

        I agree with your assessment on not using a drip. I think this allows for more diversity and spreading of risk as long as you don’t mind paying attention to your accounts.

        I am 27 and have a little over $2k of annual dividend income. I have found my portfolio performance to be significantly better because of the degree of volatility that exists. Several of my buys have come at below average prices resulting in a favorable YOC.

  • Index fan April 13, 2016, 4:30 pm

    This post is an excellent example why only [EDITED..] would invest in individual stocks. This portfolio which took hundreds if not thousands of hours researching and trading not to mention trading costs/commissions and high taxes from high turnover got creamed by the S&P 5oo index (VFIAX up 1.34% plus 2.1% div yield for 2015) and high yield dividend index (VYM up 0.28% plus 3.21% div yield for 2015). Also why the obsession with dividend when you are reinvesting it anyways? Also have to pay taxes on the dividend if not in tax deferred account with overall lower return than the broad indices.

    • retirebyforty April 13, 2016, 9:59 pm

      At least get your fact straight before spouting off. I just checked Vanguard’s site and here is VFIAX’s performance in 2015.
      Capital return: -0.74%
      Income return: 2.11%
      Total return: 1.38%
      My return in 2015 was 1.8% which beat VFIAX. I paid less then $21 in fee total (purchased 3 stocks), which was less than VFIAX would have cost me. I did not have to pay any tax on my dividend income because my long term capital gain rate is 0%.
      By the way, I love index and all of my retirement funds are invested in low fee Vanguard funds.

  • Tom January 23, 2016, 11:31 pm

    What sort of things do you look for in a dividend company? I mean historic dividend returns are at least some indicator. But are there any things that you look for to judge future dividend potential? Are there any rules of thumb you use? (eg only companies over X billion market cap, only looking for payout ratio of X%, P/E ratio needs to be below Y etc etc)

    • retirebyforty January 24, 2016, 11:28 am

      I usually look at PE, payout ratio, and growth history. I will write a follow up article. I’m not as rigorous as other dividend bloggers.

  • Tyler January 19, 2016, 11:26 am

    I like your blog, and keep up the great work! Here are some thoughts for you to ponder, for what they are worth:
    – In addition to performance, I think it’s important to also look at the tax implications and administration of each of your Passive Income buckets. I’m sure you do this, but maybe a short mini-guide/critique might be interesting to your readership.
    – I don’t follow the inclusion of your retirement accounts as part of the ‘passive income’ stream. I get that you don’t plan to draw from them immediately upon your wife’s retirement, but you still won’t be able to use the income to replace your current stream at that point. I’m guessing you intend to use other income streams, but then it’s really not a true “generate enough passive income to exceed our expenses” test, if you are a purist.
    – I’ve spent some time looking at the P2P market since its origins. I used to be a very active lender and community member of Prosper and even got a lucky opportunity to sit down with the CEO in a focus group to talk about it. My take is this: Taxes are messy to deal with, especially in writing off the losses of each microloan. Returns *look* like they could be decent, but after getting taxed at the higher interest (vs. capital gain or dividend) level, in addition to the fact that these have not really gone through a consumer recession, I think the yield is pretty aligned to the risk you take.
    – Rental income is quite unique and interesting…there are fairly intricate rules around taxes (writing off 3.6% depreciation annually of the non-land value) that makes evaluating the stream more than just a simple cash flow equation.
    – For the Dividend Portfolio, my counsel would be to indeed go the route of a Vanguard fund with the same objective. I would mainly do this because you will get better sector and individual stock diversification, and the administration becomes much lower. I am not sure you can really compare raw performance without also comparing the added risk (namely covariance) you are taking with your portfolio.
    – Just some ideas for you to chew on. Respectfully submitted.

  • Jo January 14, 2016, 11:48 pm

    Q: Do you also hold other stocks in your portfolio or only these dividend stocks?
    I ask because I would guess that in the market one can find great stocks that doesn’t pay dividends but can provide high value to the net worth growth of the portfolio.

    • retirebyforty January 17, 2016, 3:33 pm

      These are all my individual stock holdings. The rest of my investments are in index funds.

  • Mike H. January 14, 2016, 9:52 am

    Kinder Morgan is a weird case. I see them as harbinger for more energy-sector dividend cuts.

    As a dividend investor, my methodology says to sell KMI. But instead, I’ve just started thinking about them as a growth stock, instead of a dividend growth stock. One of North America’s largest energy companies trading at 25% of it’s 52-week high and half of its previous 5-year low? Yes please.

    • retirebyforty January 14, 2016, 10:07 am

      It’s still a good dividend stock at this price. The payout is at 3.4%. That’s really good. It will probably drop a little more, but I think now is a great time to pick some shares up at a great discount. I’ll probably buy a little soon and add more later this year.
      Thanks for sharing your thought.

      • Dividend Growth Investor January 19, 2016, 1:01 pm

        I sell after a dividend cut. I sold KMI, because management went from forecasting 6% – 10% in annual dividend growth to cutting the dividend all within the course of one month.

        If KMI starts raising the dividend, I may reconsider to buy it.

        Have you thought about tax loss harvesting? And have you discussed your dividend investing plan? At minimum, your plan you talk about:

        1) How you identify stocks
        2) When you buy them
        3) How to monitor them
        4) What to do with dividends
        5) When to sell them


  • SavvyFinancialLatina January 13, 2016, 6:10 pm

    Great job on dividends. My next goal is to increase dividends in our brokerage account to $1000 annually. Have to start somewhere 🙂

    • retirebyforty January 14, 2016, 9:19 am

      That’s a great start. I don’t think we had $1,000 in dividend income until our 30s.

    • Dividend Growth Investor January 19, 2016, 12:59 pm

      Savvy Financial Latina,

      $1000 in annual dividend income is a great goal to have. What is your ultimate goal for dividend income?

    • John June 1, 2016, 11:08 am

      @Savvyfinanciallatina ,
      It seems our current dividend portfolios are at about the same point. I have just reached the $1,000 annual mark. Super exciting! I look forward to following you on your journey and I’m excited for you to reach this benchmark as well! You’re right, gotta start somewhere!!

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